Why Ontario capital markets taskforce missed 'key opportunity'

Regulators highlight major omission and warn certain proposals in report will undermine investor protection and reduce efficacy

Why Ontario capital markets taskforce missed 'key opportunity'

The Canadian Securities Administrators (CSA) has urged an Ontario taskforce to adopt the passport rule, which would provide countrywide, streamlined access to capital markets.

The securities regulatory authorities of British Columbia, Alberta, Saskatchewan, Manitoba, Québec, Nova Scotia, Prince Edward Island, New Brunswick, Newfoundland and Labrador, Nunavut, Northwest Territories and Yukon yesterday published an assessment of the Ontario Capital Markets Modernization Taskforce Consultation Report, which was issued on July 9.

The majority of the report was reviewed favourably, with 13 of the 47 proposals reflecting key CSA priorities or mirroring pending CSA policy projects and 19 proposals raising policy topics that have either recently been adopted by the CSA or may be considered part of the regulator’s future policy work.

However, Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers said there were major concerns and a notable omission from the report.

“We are pleased to see that there is a meaningful degree of congruence between the taskforce proposals and the CSA's current business plan. However, a key opportunity not identified in the taskforce report is Ontario's adoption of the passport rule, implemented by all other CSA members more than a decade ago to provide market participants with streamlined access to Canada's capital markets."

While the CSA supports the proposal that Ontario adopts automatic reciprocation provisions, which it said have already been adopted by most other CSA members, it believes that the passport rule is a significant opportunity to increase the efficiency of Canada’s securities regulatory system.

It said in a statement: “The adoption of this rule would significantly reduce regulatory burden for Ontario market participants whose principal regulator is located elsewhere in Canada. The passport rule creates a single window of access to capital markets across the country, and it covers prospectuses, exemptive relief applications, registration, credit rating organizations and applications to cease to be a reporting issuer.”

The CSA had reservations about nine proposals, advising that the taskforce sets aside three as they have either previously considered and rejected them following detailed policy analysis or they lack broad investor and/or market benefit. They are:

  • Adopt quarterly filing requirements for institutional investors of Canadian companies;
  • Require TSX-listed issuers to have an annual advisory shareholders’ vote on the board’s approach to executive compensation;
  • Empower the OSC to provide its views to an issuer with respect to the exclusion by an issuer of shareholder proposals in the issuer’s proxy materials (no-action letter).

The CSA also urged caution if the taskforce decides to pursue six proposals that aim to change enforcement mechanisms, as those proposals risk reducing the efficacy of the Canadian securities' regulatory regime and undermining investor protection.

The areas of the taskforce report that mirror the CSA’s include: SRO regulatory framework review; streamlining public offering requirements; streamlining continuous disclosure requirements; narrowing the criteria that trigger reporting of public company acquisitions; and strengthening OBSI as an independent dispute resolution service provider.

The Ontario Securities Commission (OSC) is not participating in the CSA members' response to the taskforce report as the OSC is in a position to provide input to the Taskforce through other channels.